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Shares of Baidu.com [BIDU:NSD] have surged $10 over three days, also surpassing its old 52-week high of $131.61. The stock is now trading closer to $133 at the moment. There is a rumour that the company is about to enter the mobile OS business, following the footsteps of its American counterpart, Google.
I have continued to implement bullish strategies on the stock, as posted in my previous blog articles, but today, I took a short-term bearish move, one I hope that will pay off. I didn't time it right, but I wrote an in-the-money call hoping to capture intrinsic value and the time value. A March25 130 weekly call option for $2.50 was what I received. However, the option is now trading at $3.60 and continues to push higher.
Many people are hesitant on buying stocks at 52-week highs for psychological reasons. Personally, I take little stock, no pun intended, in that. However, when the shares of a company are this high above the Bollinger Bands, it is more likely than not that it will correct back into its consolidated trading range determined by the bands.
Bollinger Bands create and display a trading range based on the volatility. Stocks near the top of the band are said to be overbought, while stocks near the bottom are said to be oversold. This is one of the most common technical indicators used by traders.
With that said, stocks trading above the Bollinger Bands do not necessarily correct. It is highly possible that the bands will extend upwards due to increased volatility, as currently seen. The stock could hold in the low-130's for a week while the bands expand. The Bollinger Bands are moving upwards as noted above, so it is possible shorting the stock may not be profitable, hence why I wrote an in-the-money call option, which serves the same purpose with the added benefit of disintegrating time value.
As always, I am not a licensed or registered trader, broker, or representative. The above post is a summary of my trading for the week and are ideas of ways to make money in the market. It is not meant to be taken as investment advice. Always consider your investment objectives and needs before implementing any strategy. Always talk to your advisor.
Social Similes: A Parody of Our World - Set 7 Volume 2
In light of a spike in gas prices last week, Gasbuddy.com, famous for its insertcitygasprices.com websites, issued a public service announcement with five brand new tips on how to save money at the pump.
"Consumers are already strapped for cash and rising gas prices will continue to put a small dent in the recovery process. We have come up with the five most practical answers to saving you money on gas without having to change your driving habits."
The Incredible Bulk
Most people purchase fuel 40 to 50 litres at a time (or 8 to 12 gallons for Americans) and only when they are running on empty. But buying in bulk could create substantial savings for Canadians who can easily store their gas in their garages or basements. The average person uses roughly 3,000 litres of gas annually. Even saving just one penny a litre would save $30 annually. Another added benefit is convenience. Instead of waiting in lines, you can easily fill up at home. It also allows you to buy your gas at today's price and not unknown future prices.
Take Advantage of Sales
As we approach the end of winter, many gas stations will often have sales trying to get rid of last season's outdated gas. Looking for these sales, combined with bulk-buying, could save you hundreds of dollars a year. Don't forget to go to the back of the gas station to find hidden deals. Many outlets hide their gems in the back which are often marked down significantly.
Damaged Goods
Nobody likes their goods to be damaged with chips, scratches, and dents, but you can take advantage of these products and receive heavy discounts. Make sure that these damages are aesthetic only and will not inhibit the performance of the gas or your car, which could ultimately cost you more in the end. Find gasoline with strange odours or discolouration. These traits will have no impact on efficiency or performance. Do not buy gasoline with additional double or triple bonds between carbon atoms, as this tends to be more reactive.
Internet Prices vs. Market Prices
97 per cent of gas stations in North America are not owned by gas companies. Instead, they are owned by individuals just like you or me. They are the ones that set fuel prices, but these independent owners will soon face cheaper competitors. Amazon.com says it will start selling fuel online at discounts and continues to offer free shipping when users spend more than $25. Many refiners like Petro Canada and Imperial Oil (Esso) have also started selling online. By purchasing directly from the supplier, you can save hundreds per year. Prices are also equal to all parts of the country, so those in Ontario will be paying Alberta prices! That's a savings of roughly 10 cents a litre.
Plant a Gas Garden
By growing your own gas in your backyard, you can save thousands of dollars per year. Buying seeds and tending to them can also help with your health. By choosing to grow your gasoline organically, you will also know that nasty chemicals were not sprayed into your fuel to kill insects or extend pump-life. For many living in apartment complexes or have small backyards, consider having a community garden. These types of gardens have been proven to increase the value of home equity and neighbourhood safety.
Gasbuddy.com says that these five new methods are the most practical solutions to saving money on gas. However, if any of these methods are not viable in your community, they say that drivers should adopt traditional methods, such as carpooling, driving less, taking public transit, bicycling, and walking to short destinations.
Warning: Do not store gas or fuel in garages or in basements or your home. This is a fire hazard and many local bylaws prohibit the storage of open gasoline to more than 20 or 30 litres.
Do not pour gasoline into your garden or backyard as this poses serious health risks.
I don't normally write weekly options on the Monday when the market is so unstable and unpredictable, but the option premiums were worthy of a look, and my gut instincts told me to take a calculated risk that could pay off. Down days often increase put prices as people seek protection in the market. Big down days also present good opportunities to write options as many speculators tend to over pay for puts. This week, I took a look at writing puts on Baidu and Netflix.
Mar11 weekly Baidu 115 puts look attractive at this level. The Market Intelligence Center indicated bullish technicals with resistance at $124.42. A bullish sentiment on the stock would make writing puts a less risky trade. Baidu [BIDU:NDQ] is trading at $118.62, with the out-of-the-money option selling for more than $0.80/contract. That would net you 0.62% return for four days and 2 hours of trading, and allow you to profit if the stock were to rise, remain flat, or drop no more than 3.05%, a significant buffer.
Mar11 weekly Netflix 200 puts also look attractive. The stock has shown support in the low $200's for two weeks now, suggesting many traders are willing to pay $200-204 for Netflix [NFLX:NDQ] here. Until the fundamentals change, writing a 200 put for the week will earn you $2.50 per contract, with the stock trading at $205.85. This trade would earn you 1.21% for the next four days and change, also giving you a buffer of 2.84%.
To implement both of these trades, approximately $9,500 margin will be required per contract. To implement only one of the trades, at least $6,000 margin will be required per contract. Note, these figures may vary depending on brokerage requirements.
As always, I am not a licensed or registered trader, broker, or representative. The above post is a summary of my trading for the week and are ideas of ways to make money in the market. It is not meant to be taken as investment advice. Always consider your investment objectives and needs before implementing any strategy. Always talk to your advisor.
If you haven't made your RSP contributions yet, there's still a few hours before the deadline, so make it count. When it comes to investing in your RSP, there are many vehicles that allow you to grow your money. Unfortunately for most individuals, their RSPs are at the banks and not at a brokerage, limiting their options to low yielding products. Banks can not tap the equity markets, except in the case of mutual funds, as a result, you'll be stuck "purchasing an RSP," a commonly misused term by banks. But what are you actually "buying" when your money is contributed into the RSP?
The most likely product available at the banks would have to be a Guaranteed Investment Certificate (GIC). They are covered up to $100,000 by the CDIC and are easily accessible at the banks, however, not all GICs are available. Most banks will promote their in-house GICs before their competitor's. Shopping around and researching the best GIC might be a benefit if we're talking about bigger numbers. Canoe has posted the GIC rates for Canadian institutions, available here.
Unfortunately, as you may have seen, the rates for short-term GICs are substantially low. A $10,000 investment in a GIC for one year is going to yield you at most 2.25%, which works out to $225 in a year. And the big banks don't offer anything close to 2.00%. Not something worth cheering about, but that is the trade off when you want to protect your principal.
With interest rates in Canada expected to rise in the next few years, it might be worth laddering your investment. Laddering is a strategy investors often used to evenly spread out their wealth amongst an investment product with different maturity dates. This prevents investors from investing all their money during unfavourable market conditions, as is the case today. If rates were to rise, GIC rates would reflect this and would go up. But if you put all your eggs into a five-year basket, your GIC would not go up with it because the rates are fixed. By having a cash flow that participates in future rate changes, it allows you to potentially capture future interest rate increases.
Another added benefit with laddering is anticipating liquidity. Locking all your funds from today's contribution for five-years might seem like a good idea today, but what if an emergency were to come up in three years? GICs can not be sold prior to the maturity date, unless ordered by the Supreme Court of Canada under financial hardship, and it is very rare for the courts to rule you so poor you must break a contract between you and a financial firm. Of course, deregistering your funds (withdrawing your money from an RSP), is a totally different story and should be a last resort.
It can also provide you with money for large purchases. The Canadian government created the First Home Buyers Program years ago, and tapping the funds from an RSP is common. By being able to predict and anticipate your funds to the penny for such programs is a valuable asset.
Lastly, determine when interest payments are made. Most GICs have interest paid out annually on the anniversary, however it is possible for some GICs to offer a monthly payout with a reduced interest rate. Do the math and see what nets you more over the long haul. Remember that interest in a GIC can be compounded and ensure your interest is re-invested back into the GIC, otherwise, it will sit as cash in your RSP earning next to nothing.
The banks make "buying an RSP" very simple, and in a nutshell, it is. But even with a low-yielding product such as a GIC, there are many strategies most investors have never considered, and there are more than those discussed here. You've worked hard for your money and you deserve to get as much out of it as possible. It might sound like being cheap, but you're gonna need the nickels and dimes when you're retired.
